Why a Smaller Tax Refund is Your Fault, Not the Government’s

The early data from the annual parade of tax returns is in and there are more than a few Americans upset with the reduced amount of their tax refund check. On average, the size of this year’s refund check is down by about 10 percent. If you are expecting a refund of $200 that is palatable, but if your normal refund is $2,000 that’s a sizable chunk. The government tax plan passed by Congress last year is said to the be source of the problem, a sleight of hand intended to deceive people into believing not only would their biweekly paychecks be bigger, but that would also mean their refunds would be bigger – or at least the same.

However, this is clearly a misunderstanding and misinterpretation by much of the general public. If your employer tells you that you are going to get a 10 percent raise, that amount is applied equally for every check you receive during the year. There is no “bonus” guaranteed at the end of the year unless you arrange for that to be the case beforehand. And this is what lies at the end of the road for many taxpayers in 2019.

The knee-jerk reaction may be to blame the government, which has been shown not to be an accurate assessment. Next in line is the company for not notifying the changes in the tax withholding tables which were sent out by the government early last year. Some companies may have done this, but in the age of email it is likely to have been overlooked or ignored among the hundreds of email received by the average employee every day. Besides, the unspoken truth is that the employees were more interested in seeing the increase in the paycheck, not how that increase got there.

All that was required of people who used their extra exemptions to get that fat tax refund at the beginning of the year was to adjust the number of exemptions claimed on their W-4 form. That was the small, simple piece of paperwork you filled out when you first got hired and paid little attention to since then unless you got married, divorced, or had a child or two – or three.

But if we’re going to be fair about all of this, no one is actually to blame. The government brought a significant amount of monetary joy to employees at every level, and companies hired more people while being able to give their employees more money as well. As for the individual taxpayer, they deserve a considerable dose of sympathy.

We have to go back to the end of the Clinton presidency to find an economy that was reasonably healthy. President G. W. Bush had enacted tax cut legislation in 2001 but it came at a time when the economy was taking, landing with a resounding thud in 2008 with the Great Recession. The next 8 years showed no improvement in tax rates, with many economists saying that the average employee wage was stagnant on a year-to-year basis. That’s almost two decades of taxpayers expecting little or nothing in the form of tax relief from the government – and they got what they expected.

If you were 18 years old in 2000, you are now almost 40. The number of times you even thought of a W-4 form as a meaningful tax document was when you were thinking more about arriving at the legal drinking age than planning for retirement. Overlooking the W-4 is something the public can hardly be blamed for.

This brings us to what to expect – and do – in the coming months to set the financial ship back on course. First, check your W-4 and make sure you have the number of exemptions you want to claim that will store up the money to get that fat, end-of-year tax refund check. Be sure to pay careful attention to the worksheets, as they can prove to add a little more to that refund. Second, review your thinking of getting that refund check at all. Money you delay for a year will be in the hands of government, so depending on the amount of your refund you may find better uses for it now than later. Finally, let this be a teachable moment about how you manage and pay attention to your overall finances. As uncomfortable as this may be, there were people who paid attention and didn’t get caught off guard.

For those who have yet to file or receive a return, as a matter of history the early weeks where tax refunds are low are an indicator that within a few weeks the refunds will get larger. One reason is there are many people who need to re-examine the available tax credits and changes that results in a higher refund than the previous year. We will have to wait until June to know for certain the finally tally on all the 2019 numbers.

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